A debt free friend of mine came to me this week with an interesting problem. He’s recently been laid off from his job and is living on his (not insubstantial) emergency fund and unemployment while he looks for work. By his own admission he has enough in various savings products to last him about five years at his current standard of living, even if he has to buy his own health insurance. With no debt, a reduced standard of living, and careful budgeting he could conceivably hold out for seven or eight years. The field he works in is in high demand right now, so there’s no reason he won’t have a job again within just a few months. It sounds like an enviable situation to be in,
especially in this economy.
“But I’m terrified,” he said.
“Of what?” I asked. I tried to explain to him just how lucky he was (comparatively) and how little he had to be afraid of.
“I could lose it all.”
“You’re not going to lose it all,” I said. “Yes, you may have to dip into your savings for a while but you’re debt free, you don’t live an extravagant lifestyle, and you have so much saved you could almost make it to your retirement and then you could start tapping those investments. You’re going to be fine.”
“I’m still terrified. When I had debt and lived paycheck to paycheck, I wasn’t this scared when bad things happened. I guess because back then things were so bad and I had nothing to lose, I just figured, ‘What’s one more disaster.’ But now I’m afraid of losing it all and having to go back to that way of life.”
We talked for a bit more and I think I managed to convince him that he wasn’t in danger of having to live in a box on the street and panhandle for cash. However, the more we talked I recognized some of his fear in myself and in other debt free people I know.
Janis Joplin sang, “Freedom’s just another word for nothing left to lose,” but I don’t think she was speaking of freedom from debt. As freeing as a life without debt can be, it can also spark some crazy fears. When you’re debt free and you’ve spent years avoiding debt and amassing savings, the slightest threat to that security, no matter how imagined it might be, can set you off. Suddenly you have everything to lose. You start worrying that you might burn through your savings or (eek) have to take on some debt to get by. You worry over every cent that has to go out, even if you have enough money to stay afloat for years.
By contrast, when you’re living paycheck to paycheck and wallowing in debt, things can’t really get a lot worse financially. So you take another ding on the credit report. So you have another collector calling. In this situation I think there’s a tendency, as in the case of my friend, to just say, “Well, what’s one more problem?” when a layoff happens or a medical issue pushes you further into debt. Not that this is the case for everyone; I know plenty of people who view any extra problem as a big event. But for many there is a thought that it can’t get much worse, so why worry about it.
It’s not that the debt free live in debilitating fear. However, I know that I react differently or more strongly (or in ways that don’t make a lot of sense) to perceived threats than do many of my peers. If word of a layoff starts to spread, I’m more apt to shut down all spending well before the layoff happens, just in case. Many of my peers who are drowning in debt, on the other hand, will go on a spending binge while they still have a job. Neither approach makes any sense if you look at it rationally. However, I am the one in the better position. I don’t “have to” freak out and shut down all spending, yet I do it because I’m afraid of losing what I’ve worked so hard to build. When there is an emergency that requires me to dip into my savings, I magnify that emergency to the point where suddenly I am broke and living on credit cards. It makes no sense because it would have to be all out Armageddon before that happened, but I know exactly what I stand to lose and it worries me.
People think that when you’re debt free you don’t have to worry. That’s just not true. Your worries shift and instead of worrying about getting out of debt, you start to worry about protecting the life you worked so hard to build. We debt free people know exactly how fortunate we are and what we are working so hard to avoid that the thought of having to revert to a debt laden lifestyle can make us almost ill. When you have a lot to lose, you can have a lot of fear. Part of being debt free is learning to manage that fear and to think rationally when things go awry. I’m not fully there, yet, but I am working on it.